Japanese ‘disrupter’ labels Kiwi broadband ‘retarded’

How low can you go when it comes to telecomms pricing? Much, much lower than you think, judging by figures put forward by serial telco entrepreneur Dr Sachio Semmoto, the keynote speaker at Auckland’s recent TUANZ II conference, who calls New Zealand’s broadband markets “retarded”.

Semmoto told how he set up Eaccess, an ADSL broadband services company, in 1999, and dramatically undercut rivals’ fixed broadband pricing — with the blessing of the Japanese government. The result is Japan now has the fastest, cheapest broadband service in the world, says Semmoto. Users enjoy a 50Mbit/s service for around NZ$30 a month and Eaccess has become a billion-dollar company.

Now Semmoto hopes to do the same price-cutting job for mobile broadband with Eaccess offshoot Emobile, which he set up three years ago. It is already number one in mobile broadband in Japan — and probably in the world.

Mobile voice is reaching saturation point — there are already 100 million subscribers in Japan — and is set to become a commodity service much like the long-distance market, says Semmoto. The future is in mobile data.

But, back to those prices. Semmoto says he is not typical of Japanese in deciding to become an entrepreneur and “disrupter”. It all started in 1984 when he was living in the US and noticed the huge discrepancy is long-distance call prices between the two countries.

While it cost the equivalent of $5 to make a three-minute long-distance call from Tokyo to Nara, about 500km away, in the US a similar long-distance call made from California cost a dollar.

“I thought there was something wrong,” he says.

Long-distance calls have since dropped dramatically in Japan as a result of competition and are now 1/45th of what they were, with a call from Tokyo to Osaka costing around 10¢. In the past seven years, Eaccess has forced incumbent NTT to cuts its data charge rates too. It used to charge around $200 a month for a 64Kbit/s service for heavy users, now the equivalent service costs around $36 a month and speeds are much faster, says Semmoto.

He compared ADSL (ISDN’s successor) pricing between Japan, the UK and New Zealand. Japan currently offers a 50Mbit/s service for $35 a month; UK users get an 8Mbit/s service for $64 a month, while in NZ we languish at around 3.5Mbit/s for $50 a month. “Severe competition from Eaccess” drove Japan’s price down, says Semmoto. Japan’s service is not the fastest and cheapest in the world, with the average user paying about $30 a month for 20Mbit/s.

But these price reductions have yet to be mirrored in mobile broadband, says Semmoto. Prices vary hugely across the world, with Japanese users now paying 54¢ per minute; New Zealand 28¢ and tiny Hong Kong just 7¢. At nearly seven million, its population is not much bigger than NZ’s, so size isn’t the only determiner of price, says Semmoto.

But the “disrupter” says his Emobile broadband mobile venture shows the way when it comes to pricing. With a 95% market share, garnered after just three years on the back of serious price-cutting, it offers a 7.3Mbit/s unlimited usage service for around $30 — half the price of rivals NTT and KDDI, which also have multiple service restrictions and cap speeds.

Semmoto says his two price-cutting venture have had the blessing of the Japanese government, although they have not been government financed. His competitive message for New Zealand is that we need to further regulate for competition, as Japan did. He described New Zealand as still having a “very retarded broadband situation”.

We should look to investing in mobile broadband as well as new fixed networks because the latter are so expensive, he adds. Building fibre-to-the-home networks has proved so costly in Japan that it has put the usually massively profitable NTT into the red. Fibre-to-the-curb is less costly. “Learn from Japan’s mistakes,” Semmoto advises.

Emobile built its own network, using small Hauwei base stations, after raising NZ$5 billion in debt finance.

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